In my experience, the "guarantee" does apply only to paid stays.

However, the Diamond Desk can generally do a "Diamond Override" or a "Diamond Force" in order to reserve a room for award ... but only if a "standard room" is available and the timeframe is not during a set of Extraordinary Demand Dates. Award reservations are not part of the "guarantee".

Why? Don't really know other than to say those are the rules HHonors elected to establish. They are only willing to "give away" rooms up to a point.